Tax evasion, undisclosed income to see a decline post demonetisation

Demonetisation appears to have provided the impetus for the expansion of the formal economy and has laid the groundwork for a corruption-free India by giving authorities an insight into the income of taxpayers and the source of their earnings.

Finance minister Arun Jaitley with with MoS Arjun Ram Meghwal and Santosh Gangwar at the Parliament ahead of the Union budget presentation in New Delhi on February 1, 2017. (Arvind Yadav/HT File Photo)

Demonetisation appears to have provided the impetus for the expansion of the formal economy and has laid the groundwork for a corruption-free India by giving authorities an insight into the income of taxpayers and the source of their earnings.

Although normal life was disrupted in the days following government’s note ban announcement, the move is expected to bring down the cases of tax evasion and non-disclosure of income in the long run.

Revenue secretary Hasmukh Adhia said direct tax collection soared from 6% in 2015-2016 to 15% this year and is expected to rise further primarily due to the government’s crackdown on black money. More than 2 crore zero frill savings accounts have also been opened since November 8.

While presenting the budget, finance minister Arun Jaitley had said that demonetisation seeks to create a new ‘normal’ wherein the country’s gross domestic product would be “bigger, cleaner and real”.

“This exercise is part of our government’s resolve to eliminate corruption, black money, counterfeit currency and terror funding,” he said.

The cash-to-GDP ratio in India is 12.2% while in most developed and developing economies it remained between 2 to 5%.

The exercise has also given the tax authorities a better and fairer picture of people’s incomes.

“Possibly, there has been a signal and a mechanism for better tax compliance and the thrust is now on transparency, so many people will now come under the (income tax) net..,” Abhijit Sen, chairperson, Centre for Economic Studies and Planning, said.

According to Pahle India Foundation’s founder director Rajiv Kumar, note ban changed the contour of illegal income in the country.

“The exercise has also given a huge push to digital money and thrust towards a cashless economy,” the Centre for Policy Research senior fellow added.